SKF Year-end results 2014 Alrik Danielson, President and CEO 28 January 2015

SKF Year-end results 2014Alrik Danielson, President and CEO

28 January 2015

© SKF Group 28 January 2015

Examples of new business in Q4 2014

•GE Aviation and Safran Group, Mainshaft and gearbox (Snecma & Hispano-Suiza) bearings

•Chongqing Gearbox Co., Ltd, China Bearing sets

•Andritz Hydro, Germany Special bearing and sealing solution

•Mazda, Mexico Low-friction wheel bearing units

•Daimler, Germany Wheel hub bearing units

•Jiangsu Jintongling Fluid Machinery Co., Ltd, High-speed permanent China magnetic motor unit solutions

Slide 2


Examples of new business in Q1 – Q3 2014

• Hindustan Aeronautics Ltd, India Customized bearings for helicopter transmission and main rotor

• Bell Helicopter Textron Inc.,USA Elastomeric bearings

• Turbogaz, Ukraina Magnetic bearings

• SCA, BillerudKorsnäs, Condition monitoring solutionsVattenfall, Sweden

• Geely Automobile, China Transmission seals

• Volkswagen, Germany Energy efficient tapered roller and ball bearings

• Envision Energy, China Strategic long-term partnership

Slide 3


Examples of new business in Q1 – Q3 2014

• Dongfang Electric New Energy, China Main shaft bearingsequipment

• Aurizon, Australia Service contract

• Doosan Heavy Industries and SKF Supergrip Bolts Construction, South Korea and SKF Nautilus bearing

• HSD SpA, Italy Super precision bearings and engineering support

• Tesla Motors, USA Bearing for the gearbox, e-motor and wheels

• Volvo Cars, Sweden Wheel hub bearing units

• Scania, Sweden Wheel bearing units and highpressure valve stem seals

Slide 4


Customer awards Q4 2014

Slide 5

• Best supplier award – Kirloskar Pneumatic Company Ltd., India

• Best supplier award – Nanjing Gearbox Company, China

• Top runner-up ’Best Vendor’ – Tata Steel, India

• Winner ’Cloud’ category – Software AG Innovation Awards

• Supplier Quality Excellence awards 2014 – General Motors, USA

• Quality Silver Award 2014 – Bajaj Auto Limited, India

© SKF Group 28 January 2015Slide 6

Examples of new technologies, products and solutions 2014

Compact tapered roller bearing unit for heavy freight

PuraBreeze 100

SKF Mudblock cassette seals, MUD 11

SKF @ptitude Connect

Floating piston

Tapered roller bearing unit for passenger railway applications

SKF Gear Bearing Unit

Electric grease transfer pump

SKF Wireless Machine Condition Sensor

SKF Tachometer

SKF Wireless MicroVibe

SKF Oil Injection Sets - THKI series


SKF Group – Q4 2014

Slide 7

Financial performance (SEKm) 2014 2013

Net sales 18 499 16 430Operating profit 1 608 -1 547Operating margin, % 8.7 -9.4Operating margin excl. one-time items, % 11.2 11.0Profit before tax 1 293 -1 760Basic earnings per share, SEK 1.84 -4.57Cash flow after investments before financing 2 053 -6 732

Organic sales growth in local currency:

SKF Group 2.8% Europe 1%

Strategic Industries 7.4% North America 2%Regional Sales and Service 2.2% Asia 8%

Automotive -0.5% Latin America 4%Middle East and Africa -5%

Key pointsSales volumes up by 1.8% y-o-y.Manufacturing was relatively unchanged compared to last year.


SKF Group – 2014

Slide 8

Financial performance (SEKm) 2014 2013

Net sales 70 975 63 597Operating profit 7 801 3 693Operating margin, % 11.0 5.8Operating margin excl. one-time items, % 11.7 11.9Profit before tax 6 668 2 821Basic earnings per share, SEK 10.10 2.0Cash flow after investments before financing excl. EU payment 4 693 5 342Cash flow after investments before financing 1 868 5 342

Organic sales growth in local currency:

SKF Group 3.9% Europe 1%

Strategic Industries 8.4% North America 3%Regional Sales and Service 1.8% Asia 10%

Automotive 2.0% Latin America 1%Middle East and Africa 9%

Key pointsSales volumes up by 3.3% y-o-y.Manufacturing was slightly higher compared to last year.


Organic sales growth in local currency

Slide 9

-10

-8

-6

-4

-2

0

2

4

6

8

% changey-o-y

2012 2013 2014


Organic sales growth in local currency

Slide 10

2012 2013 2014-4

-2

0

2

4

6

% y-o-y

Structure in 2012: 0.4%Structure in 2013: 2.5%Structure in 2014: 3.7%

-2.5%

-0.7%

3.9%


Sales development by geographyOrganic growth in local currency Q4 2014 vs Q4 2013

Slide 11

Europe1%

Asia/Pacific8%

Middle East& Africa

-5%

LatinAmerica

4%

NorthAmerica

2%


Sales development by geographyOrganic growth in local currency 2014 vs 2013

Slide 12

Europe1%

Asia/Pacific10%

Middle East& Africa

9%

LatinAmerica

1%

NorthAmerica

3%


Components in net sales

Slide 13

2012 2013 2014

Percent y-o-y Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

Volume -0.8 -2.8 -5.0 -5.9 -8.7 -1.6 2.2 7.1 6.2 3.6 1.9 1.8

Structure -0.1 0.0 0.8 1.0 1.5 2.6 1.1 4.8 4.7 3.8 5.4 0.9

Price/mix 1.9 2.0 0.5 0.7 0.7 -0.6 -0.2 -0.2 -0.4 1.0 1.3 1.0

Sales in local currency

1.0 -0.8 -3.7 -4.2 -6.5 0.4 3.1 11.7 10.5 8.4 8.6 3.7

Currency 0.4 3.6 -2.7 -3.6 -4.0 -5.0 -2.2 -2.1 -0.1 1.1 5.3 8.9

Net sales 1.4 2.8 -6.4 -7.8 -10.5 -4.6 0.9 9.6 10.4 9.5 13.9 12.6


Operating profit as reported

Slide 14

-2,000

-1,500

-1,000

-500

0

500

1,000

1,500

2,000

2,500SEKm

2012 2013 2014


Operating profit excluding one-time items

Slide 15

0

500

1000

1500

2000

2500SEKm

2012 2013 2014


Operating margin

Slide 16

2012 2013 20140

2

4

6

8

10

12

14

16

%

5.8

11.3

12.0* 11.9*

One-time items

* Excluding one-time items

11.0

11.7*


Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4-3

0

3

6

9

12

15

18

Regional Salesand Service

Specialty Business

Automotive

%

2012 2013 2014

Operating margin per business area as reported

Strategic Industries


Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4-3

0

3

6

9

12

15

18

Regional Salesand Service

Specialty Business

Automotive

%

2012 2013 2014

Operating margin per business area excl. one-time items

Strategic Industries


Operating profit bridge, Q4 2014 excl. One-time items

Slide 19

0

500

1000

1500

2000

2500

3000

-1 547

+75+2 078+165 +23

+110

+300 -398

SEKm

Q4 2013 Q4 2014Volumes excl.

Specialty

Business

Specialty

Business

Savings Currencies Other* Price/mixexcl.

Specialty Business * R&D, S&A, IT, inflation etc.

+1 803

One-time items2013: - 3 3502014: -470


Operating profit bridge, 2014 excl. One-time items

Slide 20

0

1000

2000

3000

4000

5000

6000

7000

8000

9000

10000

+7 568+505 +8 291+390

+375+500 +180 -1 227

SEKm

2013 2014Volumeexcl.

Specialty

Business

Specialty

Business

Savings Currencies Other* Price/mixexcl.Specialty Business * R&D, S&A, IT, inflation etc.

One-time items2013: - 3 8752014: -490


Net working capital as % of annual sales

Slide 21

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q425

26

27

28

29

30

31

32

33

34

35

%

2012 2013 2014

Target: 27%


Return on capital employed

Slide 22

2012 2013 420040

5

10

15

20

%

13.9

7.5

16.2

17.1*15.1*

One-time items * Excluding one-time items

ROCE: Operating profit plus interest income, as a percentage of twelve months rolling average of total assets less the average of non-interest bearing liabilities.

14.8*


-7,000

-6,000

-5,000

-4,000

-3,000

-2,000

-1,000

0

1,000

2,000

Cash flow, after investments before financing

Slide 23

SEKm

2012 2013 2014

Excl. acq. and div.: 1) Q3 2012 SEK 1 707 million2) Q1 2013 SEK -69 million3) Q3 2013 SEK 871 million4) Q4 2013 SEK 1 170 million

Excl. EU payment 5) Q2 2014 SEK 1 423 million

4) 5)1)

3)

2)


Net debt

Slide 24

-35,000

-30,000

-25,000

-20,000

-15,000

-10,000

-5,000

0SEKm

2012 2013 2014

AB SKF, dividend paid (SEKm):2012 Q2 2 5042013 Q2 2 5302014 Q2 2 530

Cash out from majoracquisitions (SEKm):

2012 Q3 8292013 Q1 8232013 Q4 7 900

Net debt: Loans and net provisions for post-employment benefits less short-term financial assets excluding derivatives.

EU payment (SEKm):

2014 Q2 2 825


Debt structure, maturity years

Slide 25

2015 2016 2017 2018 2019 2020 20210

100

200

300

400

500

600

700

800

900

EURm

• Available credit facilities:EUR 500 million 2019SEK 3 000 million 2016

EUR 150 million 2017

• No financial covenants nor material adverse change clause

200

100 100 110

500 500

850


January 2015: SKF demand outlook Q1 2015

Slide 26

Demand compared to the first quarter 2014The demand for SKF’s products and services are expected to be slightly higher for the Group, higher for Asia and relatively unchanged for Europe, North America and Latin America. It is expected to be relatively unchanged for Automotive Market and Specialty Business and slightly higher for Industrial Market.

Demand compared to the fourth quarter 2014The demand for SKF’s products and services are expected to be relatively unchanged for the Group, Europe and Latin America, and slightly higher for Asia and North America. It is expected to be relatively unchanged for Industrial Market and Automotive Market and slightly higher for Specialty Business.

ManufacturingManufacturing is expected to be higher year over year and compared to the fourth quarter.


SKF demand outlook Q1 2015, main regions

Share of net sales 2014

Europe 41%

Asia Pacific 25%

North America 25%

Latin America 6%

Total

Q1 2015 vs Q1 2014

+/-

++

+/-

+/-

+

Slide 27

Sequential trend for Q1 2015


SKF demand outlook Q1 2015, main business areas


Industrial Market

60%

Automotive Market

26%

Specialty Business

13%

Total

Q1 2015 vs Q1 2014

+

+/-

+/-

+

Slide 28

Sequential trend for Q1 2015


SKF sequential volume trend Q1 2015, Industries

Slide 29

14% Cars and light vehicles

6% Energy

28% Industrial distribution

14% Industrial, heavy, special and off-highway

11% Industrial, general

9% Vehicle service market

6% Aerospace

5% Railway

5% Trucks

2% Two-wheelers and Electrical



Guidance for the first quarter 2015*

Slide 30

• Tax level: < 30%

• Financial net: around SEK -250 million

• Currency impact on operating profit vs 2014Q1: SEK +300 million

Full year: SEK +900 million

• Additions to PPE: around SEK 1.7 billion for 2015

* Guidance is approximate and based on current assumptions and exchange rates.


SKF’s programme to improve efficiency and reduce cost

Q4 12

Q1 13

Q2 13

Q3 13

Q4 13

2013 Q1 14

Q2 14

Q3 14

Q4 14

2014 Total

Cost, SEKm 200 250 190 0 50 490 0 100 20 220 340 1 030

People affected 530 410 320 0 130 860 0 170 30 100 300 1 690

Giving future gross savings:

Full year gross savings SEKm

150 100 80 0 40 220 0 100 5 100 205 575

Slide 31

Realized gross savings from total programme, SEKm

Restructuring

Q1 13

Q2 13

Q3 13

Q4 13

2013 Q1 14

Q2 14

Q3 14

Q4 14

2014

Restructuring 15 35 75 75 200 70 50 10 10 140

S&A 50 50 50 50 200 0 0 0 0 0

Purchasing 100 100 100 100 400 60 100 100 100 360

Total 165 185 225 225 800 130 150 110 110 500


New productivity improvement programme

• Main activities:Productivity gain through merging the industrial businesses- merger between Strategic Industries & Regional Sales and Service

worldwide- streamlining of supporting country organisations in all main countries

General staff optimization and productivity improvements- in Group Headquarters and central staff functions

- in the Automotive business

• Reduction of annual cost by SEK 1.2 billion by the end of 2016Total cost for the programme around SEK 1.4 billion1 500 people impacted. Major part of the programme implemented within 2015.


Cautionary statement

Slide 33

This presentation contains forward-looking statements that are based on the current expectations of the management of SKF.

Although management believes that the expectations reflected in such forward-looking statements are reasonable, no assurance can be given that such expectations will prove to have been correct. Accordingly, results could differ materially from those implied in the forward-looking statements as a result of, among other factors, changes in economic, market and competitive conditions, changes in the regulatory environment and other government actions, fluctuations in exchange rates and other factors mentioned in SKF's latest annual report (available on www.skf.com) under the Administration Report; “Important factors influencing the financial results", "Financial risks" and "Sensitivity analysis”.

Documents

SKF Year-end results 2014 Alrik Danielson, President and CEO 28 January 2015